Having just returned from a few days in snowy Dallas (?) I realized I should pre-warn people of my whereabouts in the coming weeks, as I will be speaking and paneling at several upcoming events:
March: Philadelphia, New York, Boston
April: LA, New York, Boston
May: Phoenix, Bay Area, Boston
Posted in : Uncategorized
Check it out… Forbes used our counterpunch… thanks for your contributions!
I was going to write somethng dramatic about the "power of blogging"… but you can work that one out for yourselves. And a major hat tip to the Forbes technology editor, Elizabeth Corcoran, for publishing this.
PF
Posted in : Confusing Outsourcing Information, HR Outsourcing, IT Outsourcing / IT Services
Following hot on the heels of "34% Buyers Axe Their BPO Deals", I woke up to an even more breakfast-choking shocker this fine morning with Forbes.com’s Sramana Mitra declaring "The Coming Death of Indian Outsourcing" .
So I checked out the credentials of the author. I couldn’t find any other outsourcing literature, but plenty of Yahoo-Microsoft commentary, which was pretty informative. However, I did find Sramana’s blog where she comments that the "Indian BPO industry is very much at risk because of the SaaS trend, and if they do not start to get their act together and respond to the trend, they are going to get punished". This is incorrect. SaaS applications actually enable delivery of BPO services for certain processes. Where software can be delivered as a pure web application, and does not require onsite maintenance and development, what better for a global delivery model where services are delivered from remote locations? True, SaaS threatens the traditional software model, but it actually compliments an outsourcing model. And surely SaaS is much more threatening to software providers than services firms, which dominate India’s outsourcing economy.
Moreover, Sramana claims "Yet, India, for all its glory, is still the world’s back office. India’s tech industry is a "services" industry. The Indians don’t do the thinking. The customers do. India executes". Er… isn’t that the point? However, what she plainly fails to discuss is the fact that the better the Indian services become, the greater the number of services that require the "thinking". It is no coincidence that IBM, Accenture and HP have employed 10% plus of their workforces in India today to perform tasks that go beyond pure execution work. When you look at the scale and type of services being delivered from India today, as opposed to 5 years’ ago, the move up the value-chain of services being delivered from India is impressive. Services such as remote infrastructure management, financial reporting, insurance claims adjudication and industry-specific application development were a far-flung fantasy back then, but today are high-growth outsourced services being delivered for enterprises today.
Sramana picks on on ADP’s global sourcing model, which only has 2,500 staff in India. However, what she doesn’t comment on is that fact that very few firms outsource payroll to India, largely as this industry was established long before India came to prominence, but also because of the regulatory and privacy concerns tied to sending payroll data offshore.
I empathize with her concerns over wage inflation, staff attrition and rupee appreciation. These are the challenges the Indian industry is dealing with, which we discussed here last year, and it will slow down the breathtaking growth in the long-term, however, to proclaim the "coming death" of Indian Outsourcing is absurd.
Posted in : Confusing Outsourcing Information, HR Outsourcing, IT Outsourcing / IT Services, Sourcing Locations
I am seeing increased demand for outsourcing advisors early this year to facilitate outsourcing transactions. The applications outsourcing space, in particular, is showing no signs of slowing down as companies seek to renegotiate existing contracts and a host of enterprises are evaluating their options for the first time. Having spoken to several outsourcing providers over the last couple of weeks, I am increasingly seeing small advisors with low cost-bases in on the game. These firms can afford to work with clients and run deals for $250-600K for a typical 4/6 month outsourcing advisory engagement. The 4-6 month time-frame is what it typically takes to conduct a baseline analysis, develop and administer an RFP, downselect vendors and negotiate a contract. When firms want to negotiate a $10m ADM deal, for example, they do not want to spend more than 5% of the TCV on advisory fees to do the deal in the first place. This causes issues for the higher-cost advisors, who simply cannot afford to entertain low fees at this level to conduct the same work.
I am seeing smaller advisory firms such as W Group, Argea, TBI, Pace Harmon, Alsbridge and Archstone Consulting as very active in the industry facilitating client engagements right now, and competing very effectively with the established outsourcing advisory brands, namely Deloitte, TPI, PWC, Equaterra and Everest Group. So what is going on here?
1) Enterprises need advisors to facilitate and negotiate deals for them. Quite simply, most enterprises do not have the inhouse expertise to manage these complex transactions themselves. They have to use third-party support, or risk getting a poor deal and poor service levels.
2) Once an enterprise has made the decision to outsource, it wants a transaction done with "no frills". Advisors are differentiating themselves in the market with their experience, their existing IP from previous deals, and their skills in helping firms make strategic outsourcing decisions, developing post-transaction governance programs, helping to manage the initial vendor relationship(s) and develop change management programs. While enterprises like these offerings, they only really care about getting a deal done and think they can take care of all the additional issues themselves. While we have outlined here the potholes many firms have fallen down in the evaluation process, many still only view the world in a short-term "transactional" way.
3) Short-term thinking is rife. Many executives put in charge of the outsourcing decision-making are not being made accountable to think long-term about the ramifications of outsourcing, and only really care about the short-term dynamics of performing a transaction with an outsourcing services supplier.
4) The small firms can afford to do this for less. When an advisory firm has a handful of employees, its running costs are often not a great deal more that its advisors’ salaries. It can outsource its marketing, IT support, travel support, and even switchboard. Normally, advisors work from home, so there is no office rent. Kit out some smart experienced outsourcing veterans with a laptop, blackberry and a corporate AMEX and you are in business. When you aren’t dragging around corporate overhead, such as heavy marketing, HR, IT and management costs, you can, quite simply, afford to do this work for far less cost.
5) The objective of outsourcing is usually to save money. When an enterprise is in the mindset to outsource, saving money is normally the prime driver, and this mentality normally transfers over to the cost of using an advisor to broker the transaction. If you can find someone to do the same work for you for 300K, as opposed to $1m, then you may be tempted to take a few shortcuts to get the same outcome.
6) The smaller firms may have some impressive consultants. At the end of the day, advisory services are only as good as the advice from the advisor giving it. If an enterprise feels the smaller firm knows how to broker an outsourcing deal as well as a bigger branded higher-priced advisor, then the choice to go with the smaller firm is a no-brainer.
Posted in : IT Outsourcing / IT Services, Outsourcing Advisors, Sourcing Best Practises
As we reflect on enterprises’ strategies for this troubled economic climate, people seem to be thinking about the same old "routine" approaches for battening down the hatches and riding this out – i.e. mass layoffs and budget slashes across the board. This may be the case if this recession is longer and deeper than we fear, but in the shorter term, I am seeing many companies taking a different approach when bracing themselves for this forthcoming downturn than many past recessionary experiences.
The Human Capitalist blogs about the Talent Management software business and makes an interesting case for further growth in this industry, which got me thinking about the need for firms to protect their most prized people assets to ride out this this economic turbulence. If firms are buying talent management software, it is further evidence they are putting their talent issues high on the agenda. Why is this?
1) Firms remember well the dotcom bust and 9/11 nightmare, and are preparing themselves for this one well in advance. Many firms are stalling external hires and prioritizing filling vacancies with internal staff. They are hoping to minimize layoffs at all costs;
2) The aftermath of 9/11 instilled a cost-containment mentality into many companies and there is less fat to trim these days in a lot of companies (especially in HR, with that massive wave of HRO deals in 2001-2005);
3) IT and Business Process Outsourcing are increasingly becoming the logical cost-cutting measures with many enterprises focusing on farming out tactical / routine processes and placing increased emphasis on designing retained organizations (see earlier article). Outsourcing evaluation increases firms’ self-awareness and recognition of the people who add value to the business – i.e. those who perform more than simple routine duties that can be done for lower costs by third party providers;
4) The decline in young adult workers is driving increased concern regarding talent shortages – particularly among larger enterprises. Letting talent go now is likely to result is costly re-hiring when we exit this downturn.
Hence, the focus is more directed on developing and retaining talent than ever before. Let’s hope this downturn isn’t so severe that even these talent issues get thrown out of the window.
Posted in : Finance and Accounting, HR Outsourcing, HR Strategy, IT Outsourcing / IT Services
Get your service levels right before you sign the transaction…
Posted in : Absolutely Meaningless Comedy
Some thought-provoking gems from February:
An Industry Gone Wild on HRM Technology Deployment: HR luminary, Naomi Bloom, is on top form as she gives us a breakdown of the evolution of the Human Resources Management (HRM) software market over the past 4 decades, and discusses the influence of how IT and Business Process Outsourcing has given companies access to delivery models and scarce talent to run HR technology platforms. However, she doubts today’s HRM software vendors will achieve the Holy Grail of a true one-to-many model with SaaS, as they cannot create the "embedded intelligence across HRM processes" and has faith in HR BPO as the preferred deployment and payment model. Well worth a read.
The NASSCOM 2008 Diaries: More Fog on the Windshield: AMR Research’s Chief Research Officer, Bruce Richardson, on his experiences and takeaways from the recent NASSCOM event in India.
Renewal Strategies for ITO Relationships: TPI’s thought-provoker Peter Allen is on the money discussing options enterprises have when they enter into renewal discussions with their ITO provider. "Incumbent providers should not be retained on the basis of predecessor agreements. A review of the current market conditions – meaning pricing, contract terms, and scope of services – is essential. We’ve observed that some clients can become complacent and trapped by the perception that the transfer of responsibility and institutional knowledge between IT service providers, or repatriation, becomes costly…..The pricing of the existing contract should be compared to the prevailing market for like services in order to gauge the range of anticipated future pricing" I appreciate Peter’s efforts to discuss some of these options for enterprises today so openly on his blog. My view is that enterprises today need to use renegotiation as a great opportunity to get more value (process and technology) from their provider. More on this to follow…
Mexico Sourcing: That Margarita Never Looked Better: Jason Busch on Mexico’s attractiveness as a manufacturing sourcing location for US businesses. "When it comes to the dollars and sense of importing manufactured parts and goods into the US on a total cost basis, the benefits that Mexico presents more than outweigh the risks." Interesting discussion… builds on what we discussed here.
You’re Not Consultants Anymore: Brian Sommer on why consultants have become "order fulfillment specialists". "People love to call themselves consultants even when all they do is show up at the same outsourcing data center and do the same task every single day. Likewise, you are not a consultant if you routinely install the same software package using the same methodology that is sold through a menu of pricing options from which a customer selects. No, you’re not a consultant."
Podcast: Outsourcing in a Downturn: And finally….yours’ truly being grilled on the potential ramifications of an economic downturn on outsourcing trends by AMR Research’s CEO Tony Friscia.
Posted in : Finance and Accounting, HR Outsourcing, HR Strategy, IT Outsourcing / IT Services, Outsourcing Advisors, Outsourcing Heros, Procurement and Supply Chain, Sourcing Best Practises
I wanted to introduce a great blog called 360 Degree Vendor Management written by a good friend of mine who facilitates complex RFP development, leads vendor selections, contract negotiations, and manages outsourcing governance processes for a FORTUNE1000 enterprise. She / he obviously cannot share her experiences publicly so chooses to do so under blogsphere anonymity. Respect to that!
Some great pieces which are well worth reading include:
Insights on Procurement Outsourcing
Onsite Vendor Management in a Global Outsourcing Environment
Vendor Management and Learning Curves
Posted in : Outsourcing Heros, Procurement and Supply Chain, Sourcing Best Practises
I am delighted to announce that today’s guest post is from none other than Mr John Cleese of Monty Python and Basil Fawlty folklore. I’m afraid Mr Cleese has some rather disturbing news for you Americans. Over to you John….
Posted in : Absolutely Meaningless Comedy, Sourcing Locations
The Guardian put out an excellent report last week entitled "Behind the Great Firewall", which discusses the Internet popularity in China, and the fact that there will shortly be more Chinese online than Americans. The piece does a good job pointing out how much the Web is impacting society, but what concerns me is the fact that the Chinese government is working extremely hard to increase its level of censorship and keep the Chinese Internet-world sectioned off from the rest of the world. The Guardian has since followed up with a further report entitled "China’s New Internet Purge", which discusses how the Chinese government is ramping up its attempts to close down it’s "Black Web" bars. Just last month, there were 868 arrests made of people providing "unhealthy" content. Google reports that the most searched for words in China are related to "money" and "technology", which indicates that this "unhealthy" content probably wasn’t all pornography. People talk a lot about how China will be changed more by the Internet than the Internet will change China, but if the Chinese government manages to keep most Western sites from being accessed, and persists with stepping up attempts to block this "unhealthy" content, then surely there will be a limit to the level with which China can become "changed"? How far could the Chinese government go to restrict the Internet within its borders? And will the Internet really change China to a great extent if their citizen are only interacting amongst themselves across controlled media. If it’s a battle for restricting information online, then surely the player with trillions of dollars will win out?
As we discussed here a few week’s ago, there are some clear challenges with China becoming a dominant force for delivering outsourced, or offshored, knowledge-services for Western businesses. One of the key reasons for the success of India and the Philippines, for example, for delivering outsourced services such as application development, insurance services and accounting services, is the ability for their workers to learn and assimilate with Western business culture. Interaction with Western staff is vital, and so is the ability for offshore workers to research information in the Web. If the Chinese middle-classes are continually blocked from integrating their online culture with the rest of the world, won’t this impact their ability to assimilate, understand Western business culture and deliver knowledge services for customers outside of the Great Firewall? They have proved themselves highly proficient at producing physical products in China at very low cost, and have clear potential to develop their engineering services on a global scale, but the constant attempts to keep China sectioned off from the rest of the world over the Web could substantially hold back the country from delivering knowledge-based business services for Western companies. If their development is stifled through restricted access to information and people outside of China, they could be left performing knowledge tasks that require very limited "business thinking" , for example data-cleansing services.
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….who’s this Barack Obama guy?
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Posted in : Sourcing Locations
